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'Dog ate homework' excuse won't cut it

Stuart Washington

It was classic ''the dog ate my homework'' stuff - with a smattering of Maxwell Smart's ''missed by that much'' - when the Australian Securities Exchange conducted its fifth quarterly review of directors' trading notifications.

Under listing rules, all listed companies have an obligation to tell the ASX about directors trading in their companies' shares within five business days of the trades occurring.

Creative excuses come thick and fast when the ASX asks those who don't hit the deadline why they filed a late notice.

Ernst Kohler at the Perth gold explorer Echo Resources was a good example when his company secretary wrote: ''Mr Kohler was unaware of his trades and uncontactable in field on business.'' Such an excuse - a director not aware of his own trading in his own company? - is head and shoulders above the usual run of ''administrative oversights''.

The Perth transport software provider SmartTrans Holdings blamed ''inadvertence'' for the directors John Forsyth, Andrew Forsyth and James Laurie failing to file three notices each about changes to their interests in 2005 and 2006. Boy, that's really late homework.

The Sydney gaming machine software developer eBet's contribution should not be overlooked. In March, checking the late notification of a November trade affecting the interests of the chairman, Michael Hale, eBet turned up a series of trades between March and July last year affecting the interests of another director, Allan Sullivan.

In a similar vein, in 2008 the ASX challenged the Perth software developer Webspy about late notification on five trades by a director, William Brooks. Lessons were not entirely learnt. Webspy only revealed in March a complicated trade by a director, Thomas McGellin, in August.

Excuses about the filing of late notices are full of the human frailty behind the corporate facade, including the company secretary was sick/on holidays/really busy.

''By mistake [I] sent it to ASIC and subsequently I lodged it with you immediately it was returned to me,'' wrote the company secretary for a Campbelltown paintbrush manufacturer, Oldfields Holdings.

Late notices are a serious matter with implications for the overall health of the market. So serious, in fact, that delays in notifications of directors' dealings beyond 14 days are regarded as a potential breach of the Corporations Act.

An uncomfortable finding from the ASX's latest review, published last week, is that within the first quarter 82 directors' notices were more than 14 days late. These have been referred to the Australian Securities and Investments Commission.

With the quarterly reviews, the ASX - long absent from meaningful scrutiny of how directors fulfilled their obligations on dealings - appears to have had a beneficial impact . The number of incorrect or late notices fell to 5.2 per cent (or 136 notices) in the first quarter this year from 13 per cent in the first quarter of 2008.

There remains considerable room for improvement. Reporting trades is important because it serves as a check on directors using inside information to pursue their interests ahead of those of shareholders. As well as being illegal, using inside information is also devilishly hard to prove, so timely disclosures are a handy first line of defence. Seasoned company watchers regard the actions of directors as a meaningful indicator of long-term company performance.

Importantly, the need for improvement is not restricted to the tiddler category and flustered, part-time company secretaries tripping over the listing rules.

Oz Minerals, with a current market capitalisation of $3.1 billion, was issued a ''please explain'' in February for late notifications of directors' interests. In January the ASX quizzed Sigma Pharmaceuticals, now under offer for $707 million.

Directors who are caught out in these reviews often whinge about the unwanted exposure. They say the real miscreants in insider trades are unlikely to file any details of their trading and will trade through other mechanisms.

True, but directors - and the company secretaries who often take the fall for the poor disclosure - must realise accurate portrayal of directors' dealings in their own company is essential for a fully informed market.